If you're considering buying a vacation home that will also
earn income from short-term rentals, you'll have to think about more than your
own desires. The best location for you isn’t necessarily the one that will best
attract short-term renters.
For example, if the home well off the beaten track, no one
may have even heard of the place, much less think to search for a vacation
Here’s what else to consider in choosing your likely
- Local vacation rental rates. Get a
copy of the local newspaper and look at the available vacation rentals
comparable to the size and type of house that you’re interested in. This
will help you gauge what your competitors are charging and whether you’ll
likely be able to charge enough to cover your costs. Keep in mind that
many vacation rentals have varying rates depending on the time of year.
It’s best to look at rental rates during the high and low season and
create an average. Have your agent find out when the rental rates change
and what these rates are. You can also ask other landlords in the area.
Also, realize that all houses in a given area aren’t created equal: For
example, a house that’s walkable to the beach will rent for more than an
equivalent one that’s a two-minute drive away. Of course, that house will
also cost you more to buy.
- Which way rental rates are headed.
Your snapshot view won’t tell you whether you can raise your asking rent
next year — or might have to lower it. Find out the average amount by
which local vacation rents have increased or decreased over the last five
or so years. (You’ll need to know this when you calculate your cash flow.)
Your best bet is to contact a local property management company or ask a
real estate agent who also handles property management in the area. You
can also call the local newspaper and request back issues from previous
years so you can search through the classifieds. And keep your eye on the
local and national news, too. Rents on vacation properties can shift up or
down considerably based on the state of the national and local economy.
When the economy is down, vacations are among the first nonnecessities
that people cut.
- Vacancy rates. Usually expressed
as a percentage, this tells you how many months out of the season you can
expect to have your place sit empty (for example, because the beach is too
windy to stroll on in winter, or the ski season lasts only a few months).
A strong vacation rental market would have a vacancy rate of 10% or lower
during the peak season. Ask your real estate agent for the median vacancy rates
during the peak and off-peak seasons.
- Surrounding activities. Aside from
the main attraction drawing prospective renters — a lake, mountain, golf
course, or whatever — it helps if your location supports auxiliary
activities such as dining out; visiting art galleries or antique shops; renting
DVD s; shopping for food, forgotten toothbrushes, and souvenirs; and so on.
Make sure these are within a reasonable driving distance (usually 20
minutes or less).
- Crime rate. High crime will deter
vacation renters. Criminal activity also adds to your headaches as a
landlord, since you’ll have to think about security measures, what to warn
your tenants about, and so forth.
If you're considering a vacation rental in an area you've
already stayed in, you know about some of the above considerations. If not,
you'll want to do some in-depth research, and try taking a few trips to the
area as a renter before you commit to buying.